Teaching Your Child the Value of Money

     When my children were small, I had a discussion with my mother in law regarding giving your children allowance. She had given my husband and his brother allowance when they were growing up. My husband liked to save his money and his brother would spend all of his allowance quickly. I had never received allowance when we were small. My Mom paid us for jobs around the house to earn money at Christmas to buy presents for our siblings and parents. As we aged, we went to outside sources to earn money by babysitting, cutting lawns, pulling weeds, shoveling snow... and when we turned 16 years old we were all gainfully employed part time. My first job was at McDonald's. 

     I was actually against the idea of giving my children money until I heard about what seemed to be a good way to not just give them spending money but teach them the value of money. Here is an explanation on how it works.

     1. You give them the amount of dollars equal to their age. If they are 3 years old they get 3 dollars per week. (We started when my son was 6 and my daughter was 3)
     2. They are given three containers marked as follows: "Spend how you want", "Save for something special" and "Save for bank." We used peanut butter plastic jars.
     3. Each week when they are given their allowance the split it into thirds and the portions go into each jar. 
     4. So at the end of each month we made out a deposit slip and the "bank" amount went into their savings account at the local bank. Unfortunately, over the years the banks have had a minimum requirement to open a savings account even for children. So you may need to call around to find a bank that has a children's savings account without a minimum. 

     We extended the thirds rule to other money that they received as well. If they were given money for their birthday or Christmas, unless they were going to purchase something specific, they split it in thirds as well. When they received a number of birthday gifts, they were often satisfied with putting a lot more money into their bank account. Sometimes they would get a significant amount in "spend how you want," and choose to move it to one of the other jars. "Bank" money was not to be touched, it was designated for the bank. 

     Now this is the part that you really have to be dedicated to as the adult. If you make a trip to the store and they want a candy bar at checkout, they need to use their own money to purchase it. You are done buying them anything on an everyday basis. If you go to the dollar store and they see an item for a dollar and you purchase that for them, you are debunking the system. You need to say "Okay, but you need to use your own money." I know that you are thinking it is only a dollar, but you have to look at the big picture and the long term lesson for them. Wait until you see how often they will tell you when you say they have to pay for it "I guess I really don't need that or want it that much." You will be happily surprised at how much less junk you end up with in your house. Many less toys get bought only to be forgotten about the next week. 

     At times, they will buy something and then wish they hadn't when they see an item that they like better. DO NOT try to fix it! It is really important for them to learn from their spending mistakes. Next time they will give their choice more thought. This is giving them the skills to make better choices when they are buying their first car, first house, or choosing a college. 

     Take the time to add up what you have spent recently on the little extras that your children ask for when you are at the store. Maybe you see this or that you think they might like and purchase it for them. You are going to be surprised on how much you are actually spending. This could be a lesson for you as well. Many people think nothing of spending $10 here or $20 there. Even the $2 items can add up quickly if you are not paying attention. But when you add it up at the end of the month, it could add up to much more than a month's worth of allowance. I found this out when my son was small and we would go to the store and he would ask for a new action figure. I said okay but from the bargain bin. But $3 dollars this time, $6 the next and sometimes they were 3 for $10 but it all adds up.

     You are also going to find out how much better they take care of the items that they have bought for themselves. It gives them a great sense of pride that they have saved up to buy something expensive on their own. My son was only 9 years old when he purchased is own Nintendo GameCube. I was so proud of him and was telling everyone what a great job he had done and how amazing it was for someone his age to have waited so long for something that he really wanted. He had "saved for something special" often by adding "spend how you want" money to that jar. When his 9th birthday arrived he received some cash from that as well and his patience had paid off.  

     This money management and learning to delay their purchase until they can afford to buy something is an awesome life lesson. They learn the value of money and how important it is to make wise choices on how to spend it. By the time my son was 14 years old, he had more than enough money in the bank to put his money into a CD earning more interest than his savings account. That was another proud moment of wise money management. The first several years he earned $40 per year on his $l,000 CD.  Although he no longer uses money jars to control his spending, he will often put an entire paycheck into his savings instead of checking account.   

     This method has worked wonderfully for my children. They are both great at saving money while still purchasing the items that they desire. They know the value of money and about spending or saving it wisely. It was a great decision to give them allowance because we had a plan in mind on how they would learn from the experience. Do you have a savings plan? Are you choosy about how you spend your money? Are you aware of how quickly it all adds up? One four dollar cup of coffee per day x five days per week x 52 weeks per year is $1,040 per year. But you may be thinking it is only $4. That could equal 2 or 3 car payments or how many electric bills? Or the start of a savings account. A large can of coffee is $12, a decent travel mug $12 and a coffee maker is $25 at Walmart. Just something to think about. 

     Afterthought: Ask your children what they do with the change from the lunch money that you give them. My daughter used to find the change in the machines at school, or kids would purposely leave it on the lunch table or floor saying that they didn't want to be bothered with the coins. Many times it was .50 to .80 cents. Do your children appreciate the value of your hard earned paycheck?